The Lehman formula is a declining fee scale: a higher percentage on the first tranche of the price and a lower one on each tranche above it. The doubled version applies twice the original rates, and it is the shape most commonly proposed to lower middle market sellers today.
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How a declining scale is applied
The price is split into bands and a different rate applies to each band, not to the whole. That is the part sellers most often misread: a scale that starts at 10% does not mean 10% of the total. The effective rate on a larger sale is therefore much lower than the headline, which is the point of the structure.
What varies between firms
The size of each band, the rate on each, where the scale stops declining, and whether a minimum fee overrides the whole calculation. Two firms both offering the double Lehman can produce materially different totals, so ask for a worked example at three prices: your expectation, twenty percent below it and twenty percent above.
What to check before agreeing
The minimum fee, because on a smaller deal it, not the scale, decides what you pay. Whether the fee is calculated on enterprise value or on total consideration including debt assumed and deferred amounts. And whether an earnout or a seller note is fee bearing when received or at closing, which changes what you owe if the deferred money never arrives.
Questions people ask about double lehman formula
Is the double Lehman standard?
It is common as a starting proposal in the lower middle market, but nothing about it is fixed. The bands, the rates and the minimum are all negotiated.
Does the fee apply to debt the buyer assumes?
That depends on the definition of consideration in the engagement letter, and it is worth pinning down. A fee on enterprise value and a fee on equity value are different numbers.
What about money I might never receive?
Ask that the fee on any earnout be payable only when and if you are paid. Firms will often agree, and it costs nothing to ask.